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South Korean ‘ant’ traders battle hedge funds in swarm on battery shares

Retail investors have driven nine-fold rise in EcoPro’s shares this year in echo of US meme stock craze

An army of South Korean retail traders has sparked a nine-fold rise in the shares of a battery materials producer as it takes on hedge funds betting against the company’s stock.

The individual investors — known locally as “ants” — have bought a net Won3.1tn ($2.45bn) of shares in EcoPro and its subsidiary, cathode producer EcoPro BM, in an episode with echoes of the US “meme stock” craze, where small traders used platforms such as Reddit to whip up enthusiasm for previously unloved stocks.

EcoPro’s rally of 833 per cent this year has come as bigger investors ramp up their short positions, or bets that the stock will fall. Short positions in EcoPro shares have surged from Won54bn at the beginning of the year to Won1.3tn, according to data from Korea Exchange. EcoPro BM shares have gained about 200 per cent year to date.

But South Korean retail investors, who call themselves ants because of their capacity to act as a powerful collective, keep buying shares.

Spurred on by popular YouTubers including Park Soon-hyuk, a former chemical company executive known as “Mr Battery”, the retail investors have shrugged off warnings that the stock is overvalued.

EcoPro and EcoPro BM “are typical meme stocks”, said Chan Lee, managing partner at Petra Capital Management, a Seoul-based hedge fund. “They have become too expensive even if you factor in their future growth potential.”

EcoPro’s operating profit jumped sevenfold from Won86bn in 2021 to Won613bn last year. But its price-to-earnings ratio is nearly 700 times, compared with 267 for fellow Korean battery material producer Posco Future M, 166 for battery maker LG Energy Solution, and 31 for cathode producer L&F.

Retail investors are betting that South Korean battery makers and material producers will benefit from a booming market in electric vehicles and US president Joe Biden’s landmark programme of subsidies for clean energy.

The legislation restricts the use of Chinese components in green technologies if they are to qualify for generous US tax credits, potentially eliminating competition for Korean companies.

But analysts at Goldman Sachs warned last month that the global cathode market may be oversupplied over the next decade, advising investors to sell shares in EcoPro BM and Posco Future M.

“It is a hot sector and their earnings are improving. But there is a bubble even if Korean battery makers are able to steal China’s market share,” said Lee.

EcoPro shares dipped briefly in April and again in May when company founder Lee Dong-chae was sentenced by a Seoul court to two years in prison for violations of South Korea’s capital market laws. But the stock rallied again in June, inflicting heavy losses on short sellers.

“It is hard either to buy them or to short the shares, as short covering is also boosting their prices,” said An Hyung-jin, chief executive at the Seoul-based hedge fund Billionfold Asset Management.

“Retail investors are crazy about the shares so short sellers find it increasingly difficult to withstand their ballooning losses,” An added. “Amateur traders are winning the battle against the short sellers.”

The stand-off has drawn comparisons with GameStop, a US video game retailer whose share price was driven up by retail investors in 2021. It comes as investors have spent almost $200mn trading theoretically worthless shares in Bed Bath & Beyond since the retailer went bankrupt at the start of May, in the latest iteration of the US meme stock phenomenon.

The wave of amateur Korean traders resurfaced this year after they mounted a brief campaign two years ago, inspired by their US counterparts’ frenzy buying of GameStop, to bet on biotech companies such as Celltrion and HLB, which had been targeted by short-sellers.

But Park, the YouTuber known as Mr Battery, said the comparison was misplaced. “They are not Korea’s GameStop, which is a failing company, but more like the Tesla of Korea,” Park said. “Short sellers betting against them are suffering big losses.”

SY Park, a tech start-up employee in his early 30s who is no relation to Mr Battery and declined to give his full name, remains unconcerned about analyst warnings that the EcoPro stocks are overvalued.

“I briefly thought about a bubble but the company is the leading cathode producer,” he said, noting that he has made a 480 per cent return on his Won14m investment in EcoPro BM shares.

“The share price keeps rising so I don’t worry about it any more. The company is likely to continue to sign big supply contracts.” 

Difficulties in world’s second-largest economy will put further pressure on global growth

China’s economy lost momentum in the second quarter, with gross domestic product expanding 0.8 per cent against the previous three months as falling exports, weak retail sales and a moribund property sector weighed on growth.

The difficulties facing the world’s second-largest economy will put further pressure on global growth and add to calls for Beijing to step up stimulus measures more than six months after it abandoned tough Covid-19 controls.

The second-quarter growth rate was stronger than the 0.5 per cent forecast in a Reuters analysts’ poll but weaker than the 2.2 per cent quarter-on-quarter expansion in the January-March period.

Year on year, the economy grew 6.3 per cent in the second quarter because of a low-base effect from last year, when large cities including Shanghai were locked down for an extended period. The Reuters poll had forecast 7.3 per cent growth.

The National Bureau of Statistics on Monday said “generally speaking”, economic development had “fully returned to normal” in the first half of the year.

“However, we must be aware that the international political and economic circumstance is quite complicated, and the foundation for sustained recovery at home is not solid yet,” said NBS spokesperson Fu Linghui.

China’s economy initially rebounded more strongly from the protracted Covid lockdowns last year but in recent months has begun to lose steam on weak household and business confidence.

The situation has been complicated by a slowdown in trade as high interest rates in the west weigh on consumer purchases of Chinese-made goods.

The NBS said exports in June fell 8.3 per cent compared with a year earlier. Retail sales were up 3.1 per cent in June compared with the same period the previous year and down from 12.7 per cent growth in May.

Unemployment for those aged 16 to 24 hit a new high of 21.3 per cent in the second quarter, while overall urban unemployment was stable at 5.2 per cent in June.

Carlos Casanova, senior Asia economist at Union Bancaire Privée, said retail sales and consumption should be the growth engine for China this year, so the June growth figure was disappointing.

He added the government would need to focus on improving private sector sentiment, especially if it wanted to reduce youth unemployment.

“The most disappointing number of them all . . . was the youth employment figure . . . That doesn’t bode well for sentiment, for stability, for common prosperity,” Casanova said. “They will have to focus on ways to reduce that unemployment number.”

Real estate investment was down 7.9 per cent in the first half of the year compared with the same period a year earlier, the NBS said, with commercial property sales by floor space down 5.3 per cent.

Private investment fell 0.2 per cent in the first half while capital expenditure cooled across the board.

Infrastructure investment, used by the government to stimulate the economy, grew 7.2 per cent in the first half of the year compared with a year earlier.

“China’s recovery is going from bad to worse,” Harry Murphy Cruise, economist at Moody’s Analytics, said in a research note. “The pandemic hangover is plaguing China’s recovery.”

He said consumers were wary of spending and were instead saving. Businesses did not want to invest, while a nascent recovery in the property market early this year was “fizzling” and foreign households were spending more on services rather than goods such as electronics, hitting China’s exports.

Cruise added the central bank had already cut lending rates and Beijing had extended tax breaks for electric vehicle sales. He expected more help for property and construction. “But that extra support won’t be a silver bullet,” he said. “Increasingly, 2023 is looking like a year to forget for China.”

On the positive side, catering sales were up 21.4 per cent in the first half as consumers returned to restaurants. Industrial output in the renewables sector also rose, with electric vehicles sales up 35 per cent year on year in the first half.

Economists said the focus would now switch to a meeting this month of China’s ruling politburo, which is expected to consider further possible support measures for the economy.

Shares sold off in China following the data release, with a morning drop in the CSI 300 index of Shanghai- and Shenzhen-listed stocks steepening to 1.1 per cent, while the renminbi fell 0.3 per cent against the dollar.

Brussels’ economy chief says bloc must pump billions of euros into critical industries to compete globally

Europe will need to step up its response to Washington’s Inflation Reduction Act as the US programme to finance the industrial green transition is set to be larger than expected, Brussels’ economy chief has warned.

Paolo Gentiloni, the EU economy commissioner, told the Financial Times that the bloc had enough money on the table for the immediate future, thanks to programmes including the €800bn NextGenerationEU recovery fund, which runs until 2026. 

But Brussels will have to boost its financial firepower after next year’s EU elections, he said — potentially via the previously mooted idea of a European Sovereignty Fund that would pump billions into crucial industrial initiatives such as green technologies. 

“You have a global race, and in this global race economic support from the public is part of the race — regulation is not enough,” Gentiloni said in an interview. “The pull factor of the IRA is increasing.”

US programmes including the IRA, which was passed by Congress last summer, proffer hundreds of billions of dollars in subsidies and tax credits for new investments in renewables and green manufacturing, including electric vehicles, hydrogen projects and batteries.

Other governments are rushing to come up with their own green industrial policies in response, pledging subsidies to industry as worries mount that the US incentives will hit jobs elsewhere. 

After months of debate, the European Commission in June announced the Strategic Technologies for Europe Platform (Step), which will allocate €10bn to science and innovation programmes in the coming years to “stimulate investments in critical technologies”. 

But member states have been lukewarm about contributing to the platform, which is part of a contentious midterm review of the EU’s seven-year budget and is a fraction of the size of the US programme. 

The Congressional Budget Office initially estimated the IRA carried a $391bn price tag, but Goldman Sachs estimated it could eventually amount to more than $1tn, given it included uncapped tax credits.

Gentiloni said that if it grew to that kind of scale, the EU would have to come up with a stronger response.

The proposed Step programme should be considered a starting point, he said, as the EU recovery fund only runs until 2026. “We need to build the conditions to have something more substantial.”

This is especially important, he said, given the need to counter political arguments that the EU was suffering from being an early mover on environmental issues.

However, with EU elections looming next year, it is too late to attempt to push through such an initiative, he said — especially given the cash still available from NextGenerationEU and the EU’s focus on agreeing more budgetary support for Ukraine. 

The political argument should not focus on warnings that “the planet will die”, Gentiloni said, but rather that households would prosper from green investments.

“Your family will have advantages. Your children will find better jobs. And if we are late movers the better jobs will be taken by someone else.” 

It was, therefore, “already time to reflect [on] further tools after 2026”, said Gentiloni, a social democrat and former Italian prime minister. 

The current commission took office in 2019 and its mandate ends next year.

Gentiloni was speaking after meetings of finance ministers in Brussels at which they debated plans to overhaul the EU’s fiscal rules. Draft legislation unveiled by the economy chief in April would usher in far-reaching reforms to the labyrinthine Stability and Growth Pact by granting states greater ownership of their national debt reduction plans. 

Germany has led the charge for tougher minimum debt-reduction requirements to be baked into the framework as it calls for tighter discipline.

Gentiloni defended the commission’s legislative proposal, but said it was not “untouchable”. 

If there was an increase in the numerical “safeguards” guaranteeing debt reduction, as Berlin and others have demanded, then this needed to be countered by an increase in the “fiscal space for investment” within the new rules, Gentiloni said. 

“You can improve it . . . but it’s very important not to lose the balance,” he said. He added that he was not pessimistic about the outlook for the talks on the Stability and Growth Pact, despite the fall of the Dutch government and the looming elections in Spain, which holds the EU’s rotating presidency. 

“My impression is there are a lot of conversations, discussions behind the scenes and that there’s an open attitude from everyone,” Gentiloni said.

First such move against western businesses since takeovers of Finland’s Fortum and Germany’s Uniper in April

Moscow has taken control of the Russian subsidiaries of Danone and of Carlsberg’s Baltika Breweries, according to a decree signed into law by President Vladimir Putin on Sunday.

The decree said Russia was taking under “temporary administration” the shares of Russian companies owned by the French food group and the leading Russian beer producer.

The move marks the first time that Russia has seized the subsidiaries of western businesses since it took over Finland’s Fortum and Germany’s Uniper in April.

The Kremlin did not provide further details on Sunday but has previously described such moves as a response to western confiscations of Russian assets.

An April decree allowed the state to take over the assets of companies from countries deemed unfriendly by the Kremlin in order to “protect Russian property and national interests”.

Baltika, based in St Petersburg, produces some of the most recognisable beer brands in Russia and has 8,400 employees across eight plants, according to the Carlsberg website.

In March last year, soon after the start of Russia’s full-scale invasion of Ukraine, Carlsberg said it had decided “to seek a full disposal of our business in Russia”.

Late last month, it announced that it had found a buyer for Baltika and had applied to the regulatory commission set up by the Kremlin to handle western corporate exits in order to complete the transaction.

The company could not immediately be reached for comment.

Companies from “unfriendly” countries can only sell their Russian assets for a maximum of half their value and must make a “voluntary contribution” to Russia’s war chest of 5-10 per cent of the sale price. Deals require the approval of the government — and of Putin himself in the energy and financial sectors.

Assets seized under the system launched by decree in April are to be placed under the control of Russia’s federal state asset management agency unless Putin decides otherwise, and only he can reverse the external control.

Danone’s Russia business is the country’s largest dairy company. It has also previously announced plans to sell its Russian assets, saying the deal could lead to a write-off of up to €1bn. However, it had not yet announced that it had found a buyer.

The company said it is “currently investigating the situation” and is “preparing to take all necessary measures to protect its rights as shareholder . . . and the continuity of the operations of the business”.

The Russian government’s decision came a complete surprise, according to a person with knowledge of the issue, since it had been close to finalising the deal. “We wonder whether there is a diplomatic dimension to this, due to France’s support for Ukraine,” the person said.

Dmitry Peskov, a spokesperson for Putin, told the FT in June that western investors and companies were “more than welcome” in Russia but added that “if a company doesn’t fulfil its obligations, then, of course, it goes in the category of naughty companies . . . We say goodbye to those companies. And what we do with their assets after that is our business.”

Revised offer would lead to €1.2bn equity injection in debt-laden French supermarket

Czech billionaire Daniel Křetínský is poised to win the battle for control of Casino after a trio of investors led by billionaire Xavier Niel dropped out of the running to bail out the heavily-indebted French food retailer. 

Křetínský said in an interview with the Financial Times that he had submitted a revised offer on Saturday to Casino as part of the company’s voluntary debt restructuring negotiation with creditors. In it, he and Marc Ladreit de Lacharrière’s Fimalac would lead a €1.2bn equity injection to take a 53 per cent stake in the company. On top of that, €4.9bn of Casino’s debt would be converted into equity. 

“With Fimalac and the support of key secured investors, we have presented a financial and industrial plan that can restore Casino to positive and, we hope, dynamic growth,” Křetínský said following the announcement.

The trio dubbed 3F, including Niel, investment banker Matthieu Pigasse and retail entrepreneur Moez-Alexandre Zouari, had also been working on a new offer but decided to abandon it late on Sunday, blaming Casino for running “a biased process” and singling out investment fund Attestor for switching sides to Křetínský’s bid.

“Today, after months of work, 3F has decided not to submit an offer,” they said in a statement.

Casino, France’s sixth-biggest food retailer with 53,000 employees in the country, has been controlled for decades by Jean-Charles Naouri, who built it up but has saddled it with €6.4bn in debt that rating agencies doubt it can repay.

The company, which has been burning through cash while losing market share to rivals, has been in a voluntary debt restructuring negotiation with creditors aimed at saving the company from bankruptcy. The process, which started in May, is being overseen by a court-appointed agent and closely watched by the French finance ministry.

Casino shares have fallen more than 75 per cent in the past year.

In an interview before the trio announced they would pull out, Křetínský argued his offer was the best one for the company and its creditors. He called on creditors to be “realistic” and that “a business plan that is based on hopes or imagined hopes will not succeed”. 

“It is absolutely essential that our consortium hold the clear and absolute majority in the company . . . which allows us to ensure that there is a strategy that cannot be challenged by others. This is absolutely fundamental for me because it is essential to act quickly,” Křetínský added.

He also proposed that Naouri stay on in a “respectable” role once he takes control of the indebted French grocer, which he vowed to keep together to the “maximum possible” extent.

“Our desire is to make the greatest effort possible to preserve the maximum possible, rational perimeter of Casino,” the Czech billionaire said, in an effort to quell fears that the retail chain could be sold off in parts. 

Casino has said all unsecured creditors, as well as those holding up to €1.5bn in secured debt, should expect to be converted into equity in the restructuring process, while shareholders would be “massively” diluted.

Křetínský said no agreements to sell stores to rivals were in place and that he would work to preserve and eventually create jobs as part of a turnaround focused on Casino’s extensive network of small urban stores. However, “if the reaction of customers, for example to the hypermarket format, is really very negative, with a continuing negative trend, you have to respect reality”.

Křetínský said if he took control he would want to take advantage of Naouri’s “very deep knowledge”, although “it can’t be an executive role because that no longer makes sense. But I want it to be a respectable role.”

The step that allowed Kretinsky to knock out the rival bid from 3F came when he peeled off the support of Attestor, a London-based asset manager that holds a significant chunk of Casino’s secured and unsecured debt, according to a person close to the matter. Attestor had earlier backed the 3F bid, along with four other funds who own Casino debt but, given the size of its holdings, it effectively had a blocking minority on any debt restructuring, the person added.

Having several creditors on its side was an advantage for the initial 3F proposal; once it lost them, it was hard for them to compete with Křetínský, whose offer included more fresh money to cut Casino’s debt.

“He played it very, very well — like a fox,” said the person.

The 47-year-old lawyer by training has become a formidable dealmaker since making his fortune by scooping up unloved energy companies. His fortune has doubled to more than $10bn in the past year, according to estimates by Forbes and people with knowledge of his business, as the energy crisis supercharged profits at his power, gas and coal businesses. 

The windfall has given him the means to go on an acquisition spree in the UK, France and Germany, including a stake in French national newspaper Le Monde, electronics retailer Fnac-Darty, the UK’s Sainsbury’s and German grocer Metro. 

He sees Casino as adding another string to his bow in France. 

“I consider myself quite Francophile . . . so for me having a strong presence in France is something that excites me,” Křetínský said. “Our presence in France is relatively weak compared to other countries [such as] Britain or Germany . . . so this is a great opportunity to balance that more.”

At that time, we witnessed an alarming surge in revenue multipliers, with a median of 34 and an average of 72. However, the tides have turned, and a different narrative is emerging. The global economic downturn — combined with high interest rates, growing inflation and geopolitical unrest — has caused a drastic decline in revenue multipliers within the software sector.

In an effort to shed light on this shift, I conducted an analysis of 5,413 software-related M&A deals, published on Crunchbase, that transpired between Q3 2021 and Q2 2023 in the U.S., EU and Israel.

Tech revenue multipliers trend down

I calculated the revenue multipliers over the past eight quarters, leveraging Crunchbase data and examining disclosed M&A prices and revenue, which is available only for a portion of the deals.

The results reveal a decline, with revenue multipliers eventually stabilizing around 5x. It is noticeable that revenue multipliers in Israel tend to be higher than other regions, as it is an attractive destination for global investors seeking innovative deep tech companies.

Moreover, the data showcases a noteworthy decrease in the number of M&A deals. When comparing Q2 2023 to Q3 2021, we observe a significant 41% reduction in M&A activity during this period.

However, it is important to note that the median M&A deal size, particularly the reported deal sizes, remained relatively unchanged, hovering around $70 million.

Nonetheless, it’s worth mentioning that the percentage of deals with disclosed prices dropped from 16% to 8% over the same period. Consequently, it is reasonable to assume that the valuations of deals with undisclosed prices fell below the average.

When breaking down deal sizes by region, a noticeable disparity emerges. The median deal size in the U.S. stands at $175 million, in Israel it’s $93 million, and in Europe it hovers around $38 million.

The decline in M&A deals is particularly felt in the U.S., as its share dropped from 63% to 54% of all deals. In contrast, Europe experienced an increase in its share, rising from 36% to 45% of all M&A deals.

Meanwhile, Israel’s share remained steady at approximately 2% of total deals.

Despite the challenging times faced by the tech industry, there are signs of economic growth in the U.S., exemplified by the 16% growth of the S&P 500 over the past six months.

Companies that prioritize execution, and strike a balance between growth and profitability — with an emphasis on the latter — are poised to weather this storm successfully.

Consolidation via M&A is also inevitable in an environment where private capital is tight and public market access is limited, hence we can expect a rise in tech M&A deals.

haracter.AI, which lets users create artificial intelligence–powered chatbots modeled after figures like TV character Tony Soprano and Tesla CEO Elon Musk, is in talks with investors about raising an additional round of funding, according to a person with direct knowledge. The discussions come just four months after Character.AI said it had raised $150 million at a $1 billion valuation.

New capital could help the 20-month-old startup support skyrocketing demand for its chatbots, which rely on computing-intensive models to deliver responses. At the same time, the 30-person startup is facing pressure to keep millions of users engaged, especially as larger tech companies nip at its heels. Meta Platforms, for instance, has been testing a Character.AI-like product that enables people to chat with avatars who assume different personas, such as Abraham Lincoln, according to a person with direct knowledge of the product.

THE TAKEAWAY

• Character.AI in talks with investors four months after unveiling last round

• It’s shouldering rising costs from powering chatbot interactions

• Meta has been testing a chatbot

The Facebook and Instagram parent has also built a programming assistant that can write code as well as a workplace productivity chatbot called Metamate that can help employees search for internal data, according to the person. Meta CEO Mark Zuckerberg told employees at an all-hands meeting in June that it planned to use the AI agents initially in Meta’s Messenger and WhatsApp messaging apps, according to Axios.

A spokesperson for Meta declined to comment.

Character.AI, founded by two ex-Google researchers, doesn’t necessarily need the money immediately. But the capital could provide a cushion as it tries to generate revenue by charging for perks, such as faster chatbot responses, with a $9.99 monthly subscription. As registered users have swelled to 15 million since its September launch, the startup has struggled to keep its site running smoothly, and there’s often a wait time to log in.

Back-to-back funding rounds such as the one Character.AI is considering were a hallmark of the pandemic-era funding boom. But those repeat investments died out after tech stocks crashed last year. In the last several months, advances in technology that can replicate humanlike text and images have rekindled appetite from venture capitalists, as well as tech companies like Google, Microsoft and Nvidia that provide computing and AI server chips and want to knit relationships with the promising startups.

“There’s a lot of inbound coming in, but they’re certainly not pressured to raise in the near term, even if they don’t monetize in the near term,” Sarah Wang, an Andreessen Horowitz general partner who sits on Character.AI’s board, said in a June interview.

MILAN – You don’t hear much about Gucci these days on social media or elsewhere. On Instagram, you can see a few images of celebrities posing with a handbag such as the classic “Horsebit 1955” or with some new luggage or sunglasses. But in Milan, Italy’s fashion capital and Gucci HQ, the brand is the talk of the town. What is going on – or rather not going on – at Gucci is a hot topic of discussion.

“I know that staff at Gucci are in a ‘wait and see’ mode, they are not super driven or motivated because they don’t know yet where the brand is going,” the former CEO of a major fashion brand said, having spoken to people at Gucci who were in the process of leaving or who had left recently.

“We hear that people are not very happy at Gucci,” one person who consults for several Italian fashion brands including Gucci told Miss Tweed on condition of anonymity. “They do not understand yet what direction the brand is taking.” And several other Milan-based fashion insiders echoed with similar comments.

Such a downbeat attitude is understandable. Gucci’s entire top management team has changed in the past two to three years – except for CEO Marco Bizzarri. The brand’s creative director Alessandro Michele left abruptly in November without an obvious replacement lined up. Gucci finally chose as its new creative director 40-year-old Sabato De Sarno, who was at Valentino and is not particularly well known. De Sarno started at Gucci mid-May. Since, nothing has been heard from him.

Gucci is in reset mode, but no one knows yet what it will be about. And the troubling thing is that industry insiders think that it’s not clear at Gucci either – yet.

“Marco [Bizzarri] asked Sabato what his vision for Gucci was and he liked it, but we don’t know what it is,” the former CEO said. “We all expect Gucci to be more glamorous and chic, close to what Tom Ford did, but what will it look like? We don’t know.”

Some industry observers wondered if the job was not bigger than De Sarno. At Valentino, he was in charge of ready-to-wear yet the bulk of Gucci’s sales and profits come from handbags. Will he be up to the task?

Kering asks for patience. The French group controlled by the Pinault family tells investors and industry observers they will discover De Sarno’s work at the Gucci show in September and they will then understand where the Italian brand is going. Sure. However, one thing is clear: there is much less buzz and anticipation in the air about the new Gucci than during its last creative reboot in 2015. Back then, Bizzarri was busy telling journalists and industry specialists how amazing the new Gucci was going to be under the new creative director Alessandro Michele and how the brand was going to roll out fantastic new services and concepts for its stores.

Michele relatively quickly produced images of things to come such as furry slip-ons, giving clues of about his world and sensibility and creating excitement about what to expect. Likewise, in the months before his first show for Burberry earlier this year, creative director Daniel Lee released images to give a sense of what to expect such as advertising campaigns featuring the brand’s blue knight and a refreshed logo. But from Gucci not a peep, not even crumbs to feed the pigeons of fashion eager to find out what will come out of the brand.

Michele’s first show in 2015 was a success. Collection after collection, show after show, his geek chic, baroque transgender looks won customers over and everyone wanted to wear Gucci, particularly the fashion-hungry young Chinese. Bizzarri quickly and effectively rolled out the brand’s new store concept and sales skyrocketed.

Gucci grew into one of the industry’s biggest success stories. Revenue soared to €9.7 billion in 2019 from €3.9 billion in 2015. In 2022, it stood at €10.48 billion. Its sales have grown in single digits annually since the pandemic, while peers such as Dior, Louis Vuitton, Prada and others enjoyed sales growth of 10-20%. Gucci has been underperforming for more than three years now.

Michele’s magic touch started to wane in 2020. His style looked somewhat repetitive and, most importantly, an exodus of talent began in earnest. In spite of their passion and dedication to Gucci, many top people left. Not because of Michele but because they were growing tired of working for Bizzarri, an intense executive who had grown into quite the authoritarian figure. “It’s his way or no way,” one former senior collaborator said. “Bizzarri is hugely talented and is a very good CEO, but he’s worn many people out. They just could not work for him anymore.”

The first major defection took place in 2019 when Michele lost his creative accomplice, chief merchandising officer Jacopo Venturini, who became CEO of Valentino the following year. Venturini took with him Alessio Vannetti who was in charge of communication at Gucci and became Valentino’s chief brand officer. With their departure, cracks started to appear in the beautiful castle Michele had built, as Miss Tweed reported earlier this year in a story about the make-or-break role of the chief merchandising officer.

Since then, there have been many other high-profile departures, some of them joining luxury jacket specialist Moncler, where there is a lot of creative energy and ambitious projects. Last year, Karim Fettous, who oversaw many Asian markets for Gucci, became President of Asia Pacific for Moncler. In May, Robert Triefus, Gucci’s former marketing maestro, became CEO of Moncler’s Stone Island outdoor brand. Piero Braga, who was in charge of Gucci’s retail strategy, left to run Slowear, an Italian brand that promotes a more durable consumption model. He’s one of several Gucci staff the brand has hired.

“There’s been a huge leakage of talent in the past three years,” one senior fashion executive in Milan said. “You can’t patch that by just hiring a new designer.” Today, few of those who took part in Gucci’s formidable ascent are still working for the brand. Gucci’s studio is also losing staff as it is in the process of moving to Milan from Rome where Michele was based. Not everyone is ready to follow, people close to the brand say.

For its part, Gucci says it’s putting in place a new dream team and promises they will do fantastic things. That’s great. But the recent wave of departures raises one logical question: what if the problem was not Michele but rather Bizzarri himself?

This theory is hardly new. Many investors have been asking Kering why the group did not appoint a new CEO after Michele left last year. “Some investors are clearly asking for a change of Gucci CEO even if that leads to a brand reset with margins being cut before any rebound is seen,” HSBC recently wrote in a note about Gucci.

If previously Michele was the omnipotent designer who was involved in many aspects of the brand’s operations, from image, ad campaigns to retail designs, today the role of his successor has been curtailed. “Bizzarri has taken quite a lot of the power away from the designer. But that’s also because he had probably given him too much power at some point,” one Milan-based executive said.

Bizzarri installed a new structure with several key people. There is Maria Cristina Lomanto, who was at Prada’s Miu Miu. She’s in charge of merchandising and retail. She works with Susan Chokachi, a Gucci veteran who used to lead the brand in the United States and is now looking after image and marketing. And there are many other new recent hires who replaced those who left. “Bizzarri has not given the keys of the house to Sarno. That’s pretty clear,” one Milan-based headhunter said.

Gucci is adamant that De Sarno will define the brand’s new creative vision and will inspire all of its teams. But such new structure makes you wonder whether it can work. De Sarno did not create the teams around him, Bizzarri did. If you look at who are the successful brands today, they are those with designers who have quite a lot of freedom and power. Think Hedi Slimane at Celine, Anthony Vaccarello at Saint Laurent, Maria Grazia Chiuri at Dior, Pierpaolo Piccioli at Valentino and the list goes on.

On July 27, Kering will publish its half-year results. Many analysts expect them to be a cold shower. Gucci generates the bulk of the group’s revenue and profit. “Q2 performance is unlikely to impress, with Gucci sales at constant foreign exchange rates still growing in the low single-digit territory despite an easing basis of comparison in China, whereas most sector peers could approach or even exceed 20% growth,” HSBC wrote in a note about Gucci published two weeks ago.

Concerns about Gucci’s vision, strategy and performance are reflected in Kering’s stock market price. Its shares stand now at around €500 – well below their August 2021 peak of €780.In early 2020, before the first series of lockdowns, they stood at around €600.

Comparatively, LVMH shares, which stood at €410 in early 2020 and at around €600 one year ago, are now trading much higher at €890. And Richemont shares, which stood at 70-80 Swiss francs in early 2020, have also been on the rise. In the past 12 months, the group’s share price has increased from 100 Swiss francs to more than 150 Swiss francs. Kering’s stock market performance in the past three years has been disappointing for investors.

“Despite the group announcing a new designer for Gucci, with Sabato De Sarno joining this May and his first products likely to be available in stores at the very back end of this year or early next year, some investors will question if this is going to be enough to reignite the Gucci brand,” HSBC wrote. “The low valuation of Kering shares is likely a function of doubts investors have about the equity story and notably some question marks about Gucci's roadmap,” said Erwan Rambourg, Global Head of Consumer and Retail Research at HSBC.

To that, add uncertainty about the timing of recovery of sales at Balenciaga, still reeling from its PR fiasco last year, and a marked slowdown at Bottega Veneta under designer Matthieu Blazy and the picture is far from rosy. The star is likely to be Saint Laurent, as in previous quarters. Kering management will say that its jewelry brands Pomellato and Boucheron are doing well,but they do not really move the needle in terms of sales and profits. It will also likely play up its ambitions in beauty having just bought high-end perfume brand Creed, its first major acquisition in the sector. But at questions and answers following the group’s trading update on July 27, investors will no doubt focus on Gucci – their top concern.